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3M Reports 2005 Fourth-Quarter and Calendar Year Sales and Earnings

Tuesday, January 24, 2006

ST. PAUL, Minn.--(BUSINESS WIRE)--3M (NYSE:MMM) today announced its sales and profit results for the fourth-quarter and calendar year 2005.

Fourth-quarter net income before a cumulative effect of accounting change related to FIN 47(a) was $796 million, or $1.04 per share, versus $720 million, or $0.91 per share, in the fourth quarter of 2004. Earnings per-share increased 14.3 percent, excluding the effect of FIN 47(a). Fourth-quarter reported net income was $761 million, or $0.99 per share.

"This was a great quarter for 3M with broad-based contributions from our diverse portfolio and particularly strong results in our industrial and electronics-related businesses," said George W. Buckley, 3M chairman, president and CEO. "This quarter demonstrates the value 3M's innovative products bring to customers and the superb capability of the 3M organization to overcome the headwinds of raw material price inflation. I would like to thank 3M employees worldwide for leveraging the combination of solid sales growth and strong operational performance into another double-digit earnings per share increase in 2005."

Fourth-quarter worldwide sales totaled $5.3 billion, up 4.6 percent compared to the fourth quarter of 2004. Local-currency sales increased 7.3 percent, including 2.1 percent from the acquisition of CUNO Inc. Currency effects decreased sales by 2.7 percent. Local-currency sales increased 18.2 percent in Industrial (including 12.0 percent due to CUNO), 10.9 percent in Electro and Communications, 10.2 percent in Display and Graphics, 9.7 percent in Safety, Security and Protection Services, 3.3 percent in Transportation, 0.5 percent in Consumer and Office, and were unchanged in Health Care.

For the 2005 calendar year, reported net income was $3.2 billion, or $4.12 per share. Net income excluding the effects of FIN 47(a) and the American Jobs Creation Act(b), totaled $3.3 billion or $4.26 per share, up from $3.0 billion or $3.75 per share in 2004, an EPS increase of 13.6 percent.

Calendar year 2005 sales totaled $21.2 billion, a 5.8 percent increase over 2004. Local-currency sales increased 5.1 percent, including 0.9 percent from the acquisition of CUNO. Selling prices increased 0.6 percent, and currency effects increased sales by 0.7 percent. For the calendar year, local-currency sales growth was driven by increases of 9.3 percent in Industrial (including 5.1 percent from CUNO); 6.9 percent in Safety, Security and Protection Services; 5.0 percent in Transportation; and 4.2 percent in Electro and Communications.

"Looking ahead, we will focus on driving profitable growth by investing in our most promising commercialization, geographic and technology opportunities, and part of this investment will come from savings generated through continuous operational improvements," said Buckley. "After long admiring 3M for its unique culture of innovation, decades of success, wealth of technology and outstanding people, I look forward to being part of the team that will make real the tremendous potential of 3M in 2006 and beyond."

3M also provided its full-year 2006 earnings estimates. The company expects 2006 per share earnings to be in the range of $4.45 to $4.60, including an estimated $0.16 per share cost of stock options expensing. 3M has elected to restate prior year earnings to reflect stock options expensing, the details of which will be described in the 2006 first quarter 10-Q. Restated 2005 earnings per share will be $4.12(d), including a $0.14 per share cost from expensing stock options, and excluding the one-time impacts of FIN 47(a) and the Jobs Act(b). Calendar year 2006 organic local-currency growth is expected to be between 4 and 7 percent, with an additional approximately 1.4 percent local currency growth from the CUNO acquisition.

For the first quarter of 2006, the company expects earnings per share to be in the range of $1.10 to $1.14, including an estimated $0.02 per share cost from stock options expensing(c). In the first quarter of 2005, 3M earned $0.97 per share adjusted to reflect stock options expensing of $0.06 per share. The company expects first-quarter, local-currency sales growth of 4 to 7 percent with an additional estimated 2.3 percent from CUNO.

George W. Buckley, and Patrick D. Campbell, senior vice president and chief financial officer, will conduct an investor teleconference at 10 a.m. Eastern Time (9 a.m. Central Time) today. Investors can access a webcast of this conference, along with related charts and materials, at http://investor.3M.com.

(a) In March 2005, the FASB issued Interpretation No. 47, "Accounting for Conditional Asset Retirement Obligations -- an interpretation of FASB Statement No.143" ("FIN 47"). In adopting FIN 47 in the fourth quarter, 3M recorded a noncash charge of $35 million after-tax as a cumulative effect of change in accounting principle in the accompanying Consolidated Statement of Income. This charge represents conditional retirement obligations associated with 3M long-lived assets.

(b) During the quarter ended June 30, 2005, the company completed its evaluation of the repatriation provision of the American Jobs Creation Act of 2004 (Jobs Act) and recognized $75 million, net of available foreign tax credits, of related tax liability. The company reinvested approximately $1.8 billion of foreign earnings in the United States pursuant to the provisions of the Jobs Act in 2005.

(c) For calendar year 2006, 3M expects an estimated $0.16 earnings per share cost from stock options expensing, with an estimated $0.02 per share cost in the first quarter, an estimated $0.08 per share cost in the second quarter, and estimated $0.03 per share costs in each of the third and fourth quarters. 3M expects a higher expense when the company's annual grant is made in the second quarter, due to a requirement under FAS 123R to immediately expense stock options granted to retirement-eligible employees.

(d) Reported 2005 earnings per share will be $3.98, including the restatement for stock options expensing and the one-time impacts of FIN 47(a) and the Jobs Act(b).

Forward-Looking Statements

This news release contains forward-looking information (within the meaning of the Private Securities Litigation Reform Act of 1995) about the company's financial results and estimates, business prospects, and products under development that involve substantial risks and uncertainties. You can identify these statements by the use of words such as "anticipate," "estimate," "expect," "project," "intend," "plan," "believe," and other words and terms of similar meaning in connection with any discussion of future operating or financial performance. Among the factors that could cause actual results to differ materially are the following: (1) worldwide economic conditions; (2) competitive conditions and customer preferences; (3) foreign currency exchange rates and fluctuations in those rates; (4) the timing and acceptance of new product offerings; (5) the availability and cost of purchased components, compounds, raw materials and energy (including oil and natural gas and their derivatives) due to shortages, increased demand or supply interruptions (including those caused by natural and other disasters and other events); (6) the impact of acquisitions, strategic alliances, divestitures, and other unusual events resulting from portfolio management actions and other evolving business strategies, and possible organizational restructuring; (7) generating less productivity improvements than estimated; and (8) legal proceedings, including the outcome of and information derived from pending Congressional action concerning asbestos-related litigation and other significant developments that could occur in the legal proceedings described in the company's Annual Report on Form 10-K for the year-ended Dec. 31, 2004 and the Quarterly Reports on Form 10-Q for the quarters ended March 31, 2005, June 30, 2005, and Sept. 30, 2005 (the "Reports"). Changes in such assumptions or factors could produce significantly different results. A further description of these factors is located in the reports. The information contained in this news release is as of the date indicated. The company assumes no obligation to update any forward-looking statements contained in this release as a result of new information or future events or developments.

About 3M - A Global, Diversified Technology Company

Every day, 3M people find new ways to make amazing things happen. Wherever they are, whatever they do, the company's customers know they can rely on 3M to help make their lives better. 3M's brands include Scotch, Post-it, Scotchgard, Thinsulate, Scotch-Brite, Filtrete, Command and Vikuiti. Serving customers in more than 200 countries around the world, the company's 69,000 people use their expertise, technologies and global strength to lead in major markets including consumer and office; display and graphics; electronics and telecommunications; safety, security and protection services; health care; industrial and transportation. For more information, including the latest product and technology news, visit www.3M.com.

Scotch, Post-it, Scotchgard, Thinsulate, Scotch-Brite, Filtrete, Command and Vikuiti are trademarks of 3M.




3M Company and Subsidiaries
CONSOLIDATED STATEMENT OF INCOME
(Millions, except per-share amounts)
(Unaudited)






Three-months ended


Twelve-months ended



December 31


December 31



2005 2004
2005 2004
Net sales
$5,325
$5,091
$21,167
$20,011
Operating expenses







Cost of sales
2,618

2,613

10,381

9,958
Selling, general and







administrative expenses (e)
1,178

1,084

4,535

4,281
Research, development and







related expenses (e)
317
302
1,242
1,194
Total
4,113
3,999
16,158
15,433
Operating income
1,212
1,092
5,009
4,578
Interest expense and income







Interest expense
23

17

82

69
Interest income
(11 )
(14 )
(56 )
(46 )
Total
12
3
26
23
Income before income taxes,







minority interest and







cumulative effect of







accounting change
1,200

1,089

4,983

4,555
Provision for income taxes
389

359

1,694

1,503
Minority interest
15
10
55
62
Income before cumulative effect







of accounting change
796

720

3,234

2,990
Cumulative effect of accounting







change
(35 )
-
(35 )
-
Net income
$761
$720
$3,199
$2,990
Weighted average common shares







outstanding - basic
757.6

776.2

764.9

780.5
Earnings per share - basic







Income before cumulative







effect of accounting change
$1.05

$0.93

$4.23

$3.83
Cumulative effect of







accounting change
(0.05 )
-
(0.05 )
-
Net Income
$1.00
$0.93
$4.18
$3.83
Weighted average common shares







outstanding - diluted
768.2

790.4

776.9

796.5
Earnings per share - diluted







Income before cumulative







effect of accounting change
$1.04

$0.91

$4.16

$3.75
Cumulative effect of







accounting change
(0.05 )
-
(0.04 )
-
Net income
$0.99
$0.91
$4.12
$3.75
Cash dividends paid







per common share
$0.42
$0.36
$1.68
$1.44












(e) Certain amounts in the prior periods' consolidated financial
statements have been reclassified to conform to the current period
presentation. Internally developed patent costs have been reclassified
to "Research, development and related expenses" from "Selling, general
and administrative expenses". Costs of internally developed patents
include costs and fees incurred to prepare, file, secure and maintain
patents.
3M Company and Subsidiaries
SUPPLEMENTAL CONSOLIDATED STATEMENT OF INCOME INFORMATION
(Millions, except per-share amounts)
(Unaudited)


Twelve-months ended


December 31, 2005


Excluding



special
Special
Reported


items (f)
items (f)
total
Net sales
$21,167
$-
$21,167
Operating expenses





Cost of sales
10,381

-

10,381
Selling, general and





administrative expenses
4,535

-

4,535
Research, development and related





expenses
1,242
-
1,242
Total
16,158
-
16,158
Operating income
5,009

-

5,009
Interest expense and (income), net
26
-
26
Income before income taxes,





minority interest and cumulative





effect of accounting change
4,983

-

4,983
Provision for income taxes
1,619

75

1,694
Effective tax rate
32.5 %
-

34.0 %
Minority interest
55

-

55
Income before cumulative effect of





accounting change
3,309

(75 )
3,234
Cumulative effect of accounting





change
-
(35 )
(35 )
Net income (loss)
3,309
(110 )
3,199
Weighted average diluted shares
776.9

776.9

776.9
Income before cumulative effect





of accounting change
$4.26

$(0.10 )
$4.16
Cumulative effect of accounting





change
-
(0.04 )
(0.04 )
Net income (loss) per diluted





shares
$4.26
$(0.14 )
$4.12









(f) In addition to disclosing results that are determined in
accordance with U.S. generally accepted accounting principles (GAAP),
the company also discloses non-GAAP results that exclude special
items. Special items represent significant charges or credits that are
important to an understanding of the company's ongoing operations. The
company provides reconciliations of its non-GAAP financial reporting
to the most comparable GAAP reporting. The company believes that
discussion of results excluding special items provides a useful
analysis of ongoing operating trends. Earnings per share and other
amounts before special items are not measures recognized under GAAP.
The determination of special items may not be comparable to similarly
titled measures used by other companies. During the quarter ended June
30, 2005, the Company completed its evaluation of the repatriation
provision of the American Jobs Creation Act of 2004 (Jobs Act) and
recognized $75 million, net of available foreign tax credits, of
related tax liability. The Company reinvested approximately $1.8
billion of foreign earnings in the United States pursuant to the
provisions of the Jobs Act in 2005. In March 2005, the FASB issued
Interpretation No. 47, "Accounting for Conditional Asset Retirement
Obligations--an interpretation of FASB Statement No.143" ("FIN 47").
In adopting FIN 47 in the fourth quarter of 2005, 3M recorded a
non-cash charge of $35 million after-tax as a cumulative effect of
change in accounting principle. This charge represents conditional
retirement obligations associated with 3M long-lived assets.
3M Company and Subsidiaries
CONDENSED CONSOLIDATED BALANCE SHEET
(Dollars in millions)
(Unaudited)

Dec. 31,

Dec. 31,

ASSETS


2005


2004

Current assets





Cash and cash equivalents
$1,072

$2,757
Accounts receivable - net
2,838

2,792
Inventories
2,162

1,897
Other current assets
1,043
1,274
Total current assets
7,115

8,720
Investments
272

227
Property, plant and equipment - net
5,593

5,711
Prepaid pension and postretirement benefits
2,951

2,591
Goodwill, intangible assets and other assets (g)
4,582
3,459
Total assets

$20,513

$20,708

LIABILITIES AND STOCKHOLDERS' EQUITY





Current liabilities





Short-term borrowings and current portion of long-





term debt
$1,072

$2,094
Accounts payable
1,256

1,168
Accrued payroll
469

487
Accrued income taxes
989

867
Other current liabilities
1,452
1,455
Total current liabilities
5,238

6,071
Long-term debt
1,309

727
Other liabilities
3,866
3,532
Total liabilities
10,413
10,330
Total stockholders' equity - net
10,100

10,378
Shares outstanding





December 31, 2005: 754,538,387 shares





December 31, 2004: 773,518,281 shares

Total liabilities and stockholders' equity

$20,513

$20,708







(g) The acquisition of CUNO in the third quarter of 2005 increased the
"Goodwill, intangible assets and other assets" balance by
approximately $1.3 billion.


3M Company and Subsidiaries
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(Dollars in millions)
(Unaudited)




Twelve-months ended



December 31



2005

2004

SUMMARY OF CASH FLOW:













NET CASH PROVIDED BY OPERATING ACTIVITIES
$4,258
$4,282
Cash flows from investing activities:



Purchases of property, plant and equipment
(943 )
(937 )
Acquisitions, net of cash acquired
(1,293 )
(73 )
Other investing activities
(5 )
72
NET CASH USED IN INVESTING ACTIVITIES
(2,241 )
(938 )
Cash flows from financing activities:



Change in debt
(485 )
(111 )
Purchases of treasury stock
(2,377 )
(1,791 )
Reissuances of treasury stock
545

508
Dividends paid to stockholders
(1,286 )
(1,125 )
Other financing activities
(76 )
(15 )
NET CASH USED IN FINANCING ACTIVITIES
(3,679 )
(2,534 )
Effect of exchange rate changes on cash
(23 )
111
Net increase (decrease) in cash and cash



equivalents
(1,685 )
921
Cash and cash equivalents at beginning of period
2,757
1,836
Cash and cash equivalents at end of period
$1,072
$2,757
3M Company and Subsidiaries
SUPPLEMENTAL CASH FLOW AND
OTHER SUPPLEMENTAL FINANCIAL INFORMATION
(Dollars in millions)
(Unaudited)




Twelve-months ended


December 31


2005

2004

NON-GAAP MEASURES











Free Cash Flow:





Net cash provided by operating activities
$4,258

$4,282
Purchases of property, plant and equipment
(943 )
(937 )
Free Cash Flow (h)
$3,315
$3,345
OTHER NON-GAAP MEASURES:





Net Working Capital Turns (i)
5.7

5.8

Reported (before cumulative effect of accounting change):

Economic Profit (j)
$1,882

$1,758
Return on Invested Capital (j)
23.2 %
23.4 %
Excluding Special Items in 2005:





Economic Profit (j)
$1,957

$1,758
Return on Invested Capital (j)
23.7 %
23.4 %






(h) Free cash flow is not defined under U.S. generally accepted
accounting principles (GAAP). Therefore, it should not be considered a
substitute for income or cash flow data prepared in accordance with
U.S. GAAP and may not be comparable to similarly titled measures used
by other companies. The company defines free cash flow as net cash
provided by operating activities less purchases of property, plant and
equipment. It should not be inferred that the entire free cash flow
amount is available for discretionary expenditures. The company
believes free cash flow is a useful measure of performance and uses
this measure as an indication of the strength of the company and its
ability to generate cash.
(i) The company uses various working capital measures that place
emphasis and focus on certain working capital assets and liabilities.
3M's net working capital index is defined as quarterly net sales
multiplied by four, divided by ending net accounts receivable plus
inventory less accounts payable. This measure is not recognized under
U.S. generally accepted accounting principles and may not be
comparable to similarly titled measures used by other companies.
(j) The company uses non-GAAP measures to focus on shareholder value
creation. 3M's Economic Profit is defined as after-tax operating
income less a charge for operating capital. 3M also uses Return on
Invested Capital, defined as after-tax operating income divided by
average operating capital. This measure is presented as reported and
also excluding 2005 special items. 3M's reported economic profit
calculation also excludes the impact of the adoption of FIN 47.
Special items were previously defined within the Supplemental
Consolidated Statement of Income Information section of this document.
These measures are not recognized under U.S. generally accepted
accounting principles and may not be comparable to similarly titled
measures used by other companies.
3M Company and Subsidiaries
SALES CHANGE ANALYSIS
(Unaudited)




Three-Months Ended Dec. 31, 2005









Sales Change Analysis


United


Inter-




By Geographic Area


States


national


Worldwide

Volume - organic
(1.4 )%
9.4 %
5.1 %

Volume - acquisitions
3.2
1.3
2.1
Volume - total
1.8

10.7

7.2
Price
3.2
(1.9 )
0.1
Total local-currency sales
5.0

8.8

7.3
Translation
-
(4.5 )
(2.7 )
Total sales change
5.0 %
4.3 %
4.6 %
Worldwide
Local-


Total
Sales Change Analysis
currency
Trans-
Sales
By Business Segment
Sales
lation
Change
Health Care
0.0 %
(3.6 )%
(3.6 )%
Industrial (k)
18.2

(2.6 )
15.6
Display and Graphics
10.2

(2.1 )
8.1
Consumer and Office
0.5

(1.7 )
(1.2 )
Electro and Communications
10.9

(3.3 )
7.6
Safety, Security and Protection





Services
9.7

(2.6 )
7.1
Transportation
3.3

(3.7 )
(0.4 )









(k) Industrial includes a 12.0% benefit due to the CUNO acquisition.

3M Company andSubsidiaries

SALES CHANGE ANALYSIS
(Unaudited)

Twelve-Months Ended Dec. 31, 2005
Sales Change Analysis
United Inter-
By Geographic Area
States
national
Worldwide
Volume - organic
1.0 %
5.1 %
3.5 %
Volume - acquisitions
1.4
0.7
1.0
Volume - total
2.4

5.8

4.5
Price
2.5
(0.7 )
0.6
Total local-currency sales
4.9

5.1

5.1
Translation
-
1.2
0.7
Total sales change
4.9 %
6.3 %
5.8 %
Sales Change Analysis
Local-


Total
By International
currency
Trans-
Sales
Geographic Area
Sales
lation
Change
Europe, Middle East and Africa
0.9 %
(0.2 )%
0.7 %
Asia Pacific
10.6

0.5

11.1
Latin America and Canada
1.3

7.4

8.7
Worldwide
Local-


Total
Sales Change Analysis
currency
Trans-
Sales
By Business Segment
Sales
lation
Change
Health Care
2.9 %
0.5 %
3.4 %
Industrial (l)
9.3

1.2

10.5
Display and Graphics
4.0

0.2

4.2
Consumer and Office
3.4

1.0

4.4
Electro and Communications
4.2

0.7

4.9
Safety, Security and Protection





Services
6.9

1.0

7.9
Transportation
5.0

0.8

5.8






(l) Industrial includes a 5.1% benefit due to the CUNO acquisition.

3M Company and Subsidiaries

BUSINESS SEGMENTS
(Dollars in millions)
(Unaudited)
BUSINESS



SEGMENT
Three-months ended
Twelve-months ended
INFORMATION
Dec. 31
Dec. 31
(Millions)
2005
2004
2005
2004
NET SALES







Health Care
$1,074

$1,115

$4,373

$4,230
Industrial
1,004

869

3,806

3,444
Display and Graphics
912

844

3,558

3,416
Consumer and Office
754

763

2,986

2,861
Electro and Communications
585

544

2,333

2,224
Safety, Security and Protection







Services
563

526

2,292

2,125
Transportation
420

421

1,772

1,674
Corporate and Unallocated
13
9
47
37
Total Company
$5,325
$5,091
$21,167
$20,011
OPERATING INCOME







Health Care
$304

$310

$1,215

$1,123
Industrial
188

141

735

610
Display and Graphics
281

240

1,159

1,133
Consumer and Office
143

147

576

542
Electro and Communications
115

84

463

342
Safety, Security and Protection







Services
130

107

553

491
Transportation
100

98

461

426
Corporate and Unallocated
(49 )
(35 )
(153 )
(89 )
Total Company
$1,212
$1,092
$5,009
$4,578

Contact:

3M, St. Paul
Investor Contacts:
Mark Colin, 651-733-8206
or
Bruce Jermeland, 651-733-1807
or
Media Contact:
Jacqueline Berry, 651-733-3611

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